South African retail giant sees shares plunge over 10% on R9.7 billion deal

Mr Price slumped the most on record amid market concerns that the South African clothing chain is overpaying for the retail business of NKD Group to expand in central and eastern Europe. 

The Durban-based specialist in mid-range apparel, sports goods and homeware will pay as much as €487 million ($567 million) in cash for all of Pegasus, NKD’s retail unit, as well as NKD’s shareholder loan receivables, Mr Price said in a statement Wednesday.

The stock declined as much as 12%, the most on record according to data compiled by Bloomberg, extending its drop this year to 37% and giving the retailer a market value of R50 billion.  

“It appears that the market may be concerned around the price/multiple at which the business is being acquired,” said Lester Davids, an analyst at Unum Capital.

“Additionally, the price being paid in rand also appears to be substantial when compared to Mr Price’s own market capitalization.”

Mr Price trades at 13 times annual earnings. NKD reported profit after tax of €13.1 million for the year ended 31 December 2024, implying a multiple of 37 times annual earnings given the price that Mr Price is paying for the business.

It’s not the first time a discount-focused South African clothing retailer has expanded in the region. Mr Price’s move comes about two decades after larger local rival Pepkor successfully expanded in Poland through what would become Pepco Group N.V. 

The purchase “represents an opportunity that is strategically aligned with the Mr Price Group, due to its high-performing, value-focused business, with ample runway for further expansion,” it said.

In South Africa, the largest clothing retailers are still expanding even as analysts have pointed to a degree of saturation. 

The senior management team of NKD will continue to run the business, with the purchase funded through a combination of existing cash and debt, Mr Price said.